If buying a new home in Chevy Chase, Bethesda, or the surrounding D.C. area is in your plans for 2013, you will want to spruce up your credit profile! Most mortgage denials occur due to problems with a credit report, and these problems can surface after you have a mortgage pre-approval in hand. This can cause closing delays or canceled deals.

Here are the common reasons for mortgage denials and how you can avoid them!

1. Omitted credit issues. If you had an adverse credit event in the past several years,  disclose this information during the application. If a lender does a “soft” credit review, it’s possible for some credit history to be missed. However, that information will surface in the data pulled during final approval.

Avoid this problem by declaring all material credit issues up front, whether or not the lender finds them during the initial application process. You display better character, and therefore creditworthiness, by disclosing the issues.

2. Losses on tax returns.  If you have business expenses that are not recovered, or other profit & loss scenarios that show red ink on your tax return, keep in mind that the lender will deduct certain losses from the computation of your annual income. This will lower your annual income and affect your debt-to-income ratios.

Avoid this problem by being conservative in your tax write-offs. Being over-aggressive in tax strategy can make your income appear unrealistically low to a mortgage lender.  Because lenders look at the past two years of tax returns, there isn’t a quick fix for this. However, you can also look at less expensive homes that may meet the lender’s analysis of your income.

3. Cash deposits on bank statements. In the lending environment we have today, cash can be a problem! It sounds a bit ironic, but because of mortgage fraud and other criminal activities, lenders want documentation of funds and their source. If you have cash deposits you cannot adequately explain, the lender is not going to be comfortable.

Avoid this problem by keeping excellent banking records. If you receive cash in your line of business, or cash tips, be sure to keep paper trails of the date, source, transaction, ect. Claim the income on your tax return as appropriate.

4. New lines of credit. This may seem counter-intuitive, but if you open another line of credit after being pre-approved for your mortgage, your are no longer as creditworthy to the mortgage lender. This is because your debt-to-income ratio may change.

Avoid this problem by making no changes to your credit after mortgage pre-approval. Make your normal monthly payments as you have been, but do not take out new credit, or close old accounts, or change personal data.

5.  Changing jobs.  Even if your new job pays more, don’t make any career changes during the mortgage approval process. New jobs are simply more risky in the lender’s opinion. Avoid problems by staying the course until after the final closing on your home.

Verify Your Credit Before Your Chevy Chase Home Purchase!

It’s wise to pull your own credit history once a year.  This way, you can spot and correct any erroneous data before a lender sees it. Visit annualcreditreport.com and MyFico.com for your credit history and credit score.  Even if you do not plan to make any big purchases in the near future, staying aware of your credit activity can help you detect any fraudulent use of your information.

To see public and legal data that may be reported to lenders, visit corelogic.com and obtain a copy of your Core Score.

As your Chevy Chase real estate professional, I am happy to provide information that is helpful to you! I can also refer you to a reputable mortgage lender who can answer your mortgage questions!

If you are thinking of buying  a home in Chevy Chase, MD, turn to me for the professional guidance you can trust. My experience with the Chevy Chase real estate market, and my commitment to client service, will give you the advantage!

Contact me today for help with all of your real estate questions!

All the best to you in the New Year!

Melinda Estridge
The Estridge Group-Long & Foster Real Estate, Inc.
Check Out Our Website
See Homes for Sale in Chevy Chase
Contact Us